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Post by eascogo on Jan 1, 2017 3:46:02 GMT
To minimize risk the recurring advice on this forum is to diversify across loan types and platforms. A spread of 1% maximum in any one loan is usually regarded as reasonable. Due DD takes time and not everyone, myself included, is able to conduct in-depth research into individual loans. Visitors to this forum can therefore benefit from advice and information provided by members.
I have taken an interest in looking how lenders invest their money. This is particularly easy to follow on the FS platform because usernames and amounts lent are shown for each loan. I note that some lenders are putting five or even six-digit sums in any one loan. They might be wealthy individuals or they are concentrating their targets on only a very few loans. These lenders are known as BHs on this forum. Is it unreasonable to assume that lenders putting 25k or more will have done some thorough research before investing in a loan? If this is valid then tracking or replicating their investments might be of some relevance.
I gathered in a spreadsheet all lenders with investments of 5k+ in six of the current loans offered by FS. Each row shows investment(s) for one individual lender across the six different loans. The names are redacted for confidentiality although anyone interested can easily recover theinformation from the platform. The column totals shows the contribution of all BHs in each of the six loans. I note that 15 or 20 BHs contribute about half the total value of the loan. Also of interest is the variance in percentage share. BHs have invested 58% of the total in two of the loans but only 31% in another. Could this be regarded as a significant pointer? The variation in the time each loan has been on offer may have introduced some bias but I would think it negligible.
BHs loan share anonymized.ods (10.14 KB)
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Post by sannytwist on Jan 1, 2017 5:07:42 GMT
Very good point, there is alot of money from wealthy individuals indeed.
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Post by reeknralf on Jan 1, 2017 9:02:36 GMT
In principle you could now do the same analysis on a bunch of completed loans, say 50 that repaid on time and 50 that have run more than a month late, and see if BH's are better at choosing loans.
You have to bear in mind that it is harder to take a big bite of loans that fill quickly. On the assumption that the crowd has at least some success at loan picking, loans that fill faster will be better loans, and so BH's may in fact end up with poorer than average loans. But then they get better rates on FS, which may offset this.
I've noticed one investor who seems to blindly invest £5000 in every single loan, so not much to be learnt from him. Some BH's may sell down a proportion of their holding on the sm, yielding a more-or-less guaranteed 9-10% capital gain on the part of the holding they sell, and a bonus rate on the part they hold to term. As such they presumably like the loan, but perhaps because they think it will shift on the sm at 4.5 months, as much as because they think it is fundamentally good.
If you want a simple no-DD strategy, trust the wisdom of the crowd, rather than following BH's whose motives you don't know. For instance, initially take any loan with more than £100k invested or 50% full after half an hour of listing. Then refine the parameters up or down to get the frequency of investments you want.
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Greenwood2
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Post by Greenwood2 on Jan 1, 2017 12:33:36 GMT
I used to assume lenders putting in large amounts of money knew what they were doing (in terms of picking loans), but I've seen enough defaults and enough BHs taking big hits to now think they just have much more money than me.  I would say do your own DD and follow your own instincts, or go for a site like Bondmason, who spread the risk for you. And don't invest more than you would be prepared to lose in any one loan. |
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upland
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Post by upland on Jan 1, 2017 13:37:34 GMT
A very good point indeed. In equities I believe that director buys and sells are not a sure fire thing to follow. The BH may know no more than you. Personally I rely on diversity for financial protection.
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stub8535
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Post by stub8535 on Jan 2, 2017 11:43:49 GMT
Shame there is no id for sellers, with many stars to anonymise, or visibility of trades on the sm to analyse. My observations of primary market by activity leads me to believe that many bh do not carry out dd but rely on the adage, invest in everything equally and your certain to hit the average, to decide which loans to put money into.
As for bh selling on the sm. They would need plenty of time to do so or offer massive discounts so that the monitors for these snap them up immediately. They would still make a fantastic risk adjusted return, say 8% on the sold part, as risk is removed on sold part, and have the bonus rates on what's left.
They are fortunate in the fact that, by whatever means, they are current holders of large capital reserves. Good luck to them. We need them to help fill some of the loans that appear quicker than if the bh were restricted.
Investors know the marketplace offers large bonuses for large investments. If you are uncomfortable with this, due to jealousy or not, then vote with your fingers and move to other sites. Oh, wait a minute, other sites may offer full loans anonymously to bh, that's fairer..... Not.
Happy investing and may all our pots grow in 2017.
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Post by sannytwist on Jan 2, 2017 12:47:41 GMT
Well not to say l'm jealous but rather l was wondering if they are so confident cos they have a better investment strategy than me and was wondering if l could learn something from them.
Of course DD is important and research but from just a psychological angle, it would make me feel alot better if the loans l invest in would have a few BH investing with +£50k sums as well.
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stub8535
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Post by stub8535 on Jan 2, 2017 12:58:50 GMT
"Ignore the crowd or earn what the crowd does" seems an odd investment strategy to include in ones arsenal. Bh don't always get it right but schist sticks if you throw enough at the wall! (Remove c,h and second s).
My comments are not directed at anyone, specially the jealousy one.
I like the fact that someone has spent time developing a way of analysing the vast quantity of data and shares their work for our benefit.
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Post by eascogo on Jan 3, 2017 0:13:08 GMT
"Ignore the crowd or earn what the crowd does" seems an odd investment strategy to include in ones arsenal. Bh don't always get it right but schist sticks if you throw enough at the wall! (Remove c,h and second s). My comments are not directed at anyone, specially the jealousy one. I like the fact that someone has spent time developing a way of analysing the vast quantity of data and shares their work for our benefit. This is just to say that a fair number of investors who would not regard themselves as BHs could in fact join that rank by concentrating their loans instead of spreading their 000s or 0000s over fifty or more loans. Ignoring diversification is magnifying the risk but does add some excitement. Also I would think that the bonus acts as a deterrent to selling on the SM because it is unlikely to sell at a corresponding markup.
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stub8535
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Post by stub8535 on Jan 3, 2017 0:25:32 GMT
Eascogo is right of course. The longer the loan goes on the more disadvantaged the sellers of larger bonus paying loans become as the cnv for the loan at 18% is much larger than one at 13% at the 120 or 150 elapsed time to make it come above the 13% on the value list without massive discounts.
Also, the bh usually invest early which makes things even worse when selling.
When I mention bh I am talking about the handful that drop £100k or £50k on a loan in the minutes after it is posted on every loan.
There are not many who could, even by idiotically concentrating all their cash into one or two loans, come close to this for excitement but I do take your point.
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SteveT
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Post by SteveT on Jan 3, 2017 8:03:55 GMT
No, FS bonus interest is relinquished if a part is sold via the SM so the BH's part would still be priced at 13%
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Post by sannytwist on Jan 3, 2017 8:18:58 GMT
Eascogo is right of course. The longer the loan goes on the more disadvantaged the sellers of larger bonus paying loans become as the cnv for the loan at 18% is much larger than one at 13% at the 120 or 150 elapsed time to make it come above the 13% on the value list without massive discounts. Also, the bh usually invest early which makes things even worse when selling. When I mention bh I am talking about the handful that drop £100k or £50k on a loan in the minutes after it is posted on every loan. There are not many who could, even by idiotically concentrating all their cash into one or two loans, come close to this for excitement but I do take your point. Hi, would you be able to explain this in laymans terms. I'm confused even after reading this a few times .
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fp
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Post by fp on Jan 3, 2017 9:38:02 GMT
I've noticed at least one BH's stake rolled over in to a renewal loan on FS over the holiday.
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